Why aren't more homeowners selling?

The share of San Diego County borrowers who are underwater on their mortgages continues to fall due to home-price gains, says a recent analysis from real estate website Zillow. So why aren't more homeowners freed from negative equity listing their homes in this supply-constrained market?

Selling may still be unrealistic for even those who are above water, said Stan Humphries, Zillow's chief economist.

By strict definition, borrowers are no longer underwater if their properties' current market values are more than their home-loan balances. Negative equity in the county stood at nearly 25 percent in the first quarter, down from 28 percent during the last quarter of 2012, Zillow figures show. The first quarter's percentage translates to more than 114,000 homes with underwater mortgages, equalling $13.7 billion.

However, just being above water may not be enough to comfortably sell because of down payments, real estate commissions, taxes and other fees tied to sales, Humphries said. Having at least 20 percent positive equity, Zillow's analysis says, is especially important for those who are selling to move to a home of equal or greater value.

When crunching the share of San Diego borrowers who have less than 20 percent equity, what Zillow calls the "effective" negative rate hits nearly 44 percent.

"We thought it was a conservative estimate," said Humphries, referring to the 20 percent benchmark. "To move laterally, you need at least 20 percent. Most people either move laterally or up."

Negative equity has been a widely watched indicator in the real estate world because it helps forecast the number of would-be sellers entering the market. Home sellers have been hard to come by in San Diego County, where home listings have fallen to lower-than-normal levels.

The good news for potential home sellers and buyers is that the local negative-equity rate is expected to fall to 19 percent by early 2014, as home prices are expected continue rising, Zillow's estimate shows.

"The housing market is ... recovering quite nicely, trying to get back to normal," Humphries said. "But there two big factors distorting the market. ... The first is negative equity ... and the second big distortion is incredibly low interest rates."

He mentions mortgage rates because they're at near record lows and are helping drive up demand. What helped push down rates was the Fed's economic stimulus plan to go on a bond-buying spree. It's unclear when the program will end, but some real estate insiders wonder what kind of effect the wind-down will have on the health of the housing market.